Key Themes

The global outbreak of COVID-19 has put most business plans on hold. Recruitment drives, training programmes, office expansions and new market entrances have become difficult, if not impossible. Everybody is going through it, from the sole trader to the construction firm to the government itself.

So, with EU Exit looming just as much as ever (we are told there'll be no extension to the transition period), how are we to focus on the upcoming changes?

None of us know how long the lockdown will last, and what life will look like once it's over. Some sources suggest that social distancing will continue well into next year, which will make it difficult for businesses which rely on customer interaction. Whilst there is merit in scenario planning, there is no use in trying to second-guess the likely outcome. For now, you just need to mitigate the risks in your business, as much as is reasonably possible. This might mean taking advantage of the furloughing scheme, or scaling back those expansion plans, or tapping into the government's emergency funding for companies.

The 'bounce back' loan, introduced on 4th May, allows SMEs to borrow between £2,000 and £50,000. It is 100% guaranteed by the government and comes without fees or interest for the first 12 months, with terms up to 6 years. For eligible companies, this could be the answer to seeing out a solvent 2020, and giving them the headspace they need to consider what's changing in 2021.

Michael Gove, Cabinet Office minister, told MPs on the House of Commons committee:

I think the Covid crisis, in some respects, should concentrate the minds of EU negotiators, reinforcing the vital importance of coming to a conclusion.

One of the more significant changes we will see in 2021 is how we deal with and account for VAT within the European Union. Certain processes have already been announced for how we deal with imports and exports. In order to move goods in or out of the UK, businesses will need a UK EORI number (Economic Operator Registration and Identification). In order for the organisation in the EU to receive the goods from a UK supplier, they will also need an EU EORI number. We have hopes that this will be a smooth process, as HMRC has automatically enrolled companies which are VAT registered, and have traded with Europe. If you don't fit this bill, you need to apply directly.

As well as this, one also needs to consider travel and movement restrictions. For those EU travel for business, this could be affected when rules are finalised at the end of the year. As it stands, you do not need a visa for stays less than 90 days. Passports must have 6 months remaining before expiry, be less than 10 years old to be valid, and you must obtain travel insurance. Whilst this is pretty much the same as how rules are at the moment, if we end up without a deal from Brussels, the freedom of movement under EU rules and legislation will cease immediately.

When preparing annual accounts, all companies will need to use ‘UK adopted IAS’ instead of ‘EU adopted IAS’ for financial years beginning after the 1 January 2021. Both sets of standards will be the same on 1 January 2021. There may be differences later if the UK adopts or amends standards and the EU does not.

For UK public companies with a UK listing, the way that you raise capital and trade securities on a regulated market will change. UK incorporated groups with securities admitted to trading on a UK regulated market will need to prepare accounts using UK adopted IAS for all accounting periods beginning on or after 1 January 2021. They can use EU adopted IAS for accounting periods starting before January 2021. They will not need to restate these accounts after that date. For those with an EEA listing, they will need to both comply with the rules of the country where the subsidiary is based, and produce accounts that comply with the UK Companies Act 2006.

There are silver linings to the lockdown experience. We are all learning to take the digital world with both hands, and incorporate it into our daily working lives. Employers are realising that their staff can be trusted to meet, and often beat, productivity levels. New adaptive and forward-thinking approaches will emerge, allowing for more nimble, agile and flexible working. The accountancy world was already well on its way, with many cloud systems (as well as Making Tax Digital) driving this push to a tech-focussed future.

For companies which work within the EU, and are worried about their ability to trade and travel, this new-found acceptance of digital communications will bear some fruit. Everybody is more comfortable with teleconferences and Zoom calls, and those crucial face-to-face exchanges will become all the more common through laptop screens, leading to a greater closeness across the Channel.

Thank you to Nephos, a digital accountancy practice based in Cheltenham, for providing the expertise in this article. Nephos are specialists in a more efficient, digitally-led method of accounting; designed to deliver cost-saving, efficiency, and better business decision-making.